How does COVID-19 affect global chemical companies

Corona crisis is having a significant impact on the chemical industry. The demand for chemicals in the terminal market is suffering a serious impact, the global supply chain is disrupted, the stock prices of chemical companies are being hit unprecedentedly, and the competition order of manufacturers has changed almost overnight.

How do chemicals affect it

1. Sudden oversupply and imbalance caused by supply interruption and demand shock

The destruction of demand accelerated the chemical industry into a situation of oversupply, which had been indistinct before the covid era. The automotive, transportation and consumer goods industries were the hardest hit end markets, with demand for chemicals down 30%. On the other hand, demand for drugs, food additives and disinfectants is peaking, with record exports by chemical companies in these industries.

2. With the sharp drop of oil price, the new world order has changed the advantage of regional raw material cost

Last month, crude oil prices suffered the biggest drop since the outbreak of the Gulf War in 1991. This sharp drop has led to a significant change in the price of chemical raw materials and the global competition order. The United States has lost the cost advantage of shale gas, and the Middle East has suffered the most negative impact.

As China is the world’s largest crude oil importer, its impact on Asia is mixed, as lower input prices are offset by lower output prices. Europe benefits from lower chemical raw material prices and more specialty chemicals less affected by oil prices.

3. The globalization of supply chain is accelerated

In response to major disruptions in supply chain, chemical companies have begun to transfer (part) the production of key chemicals and medical supplies to places closer to their final customers or to increase production (e.g., active pharmaceutical ingredients, disinfectant gels, respirators). Trade conflicts and structural industry trends have affected supply chains, and de globalization is now accelerating.

4. With the stock market plummeting, there are new winners and losers, which is a bold move

Since the beginning of 2020, the share prices of chemical companies have fallen sharply, and their future depends on their exposure to covid-19 (and the oil price effect) and financial strength. Cash rich companies that are positively affected may seize the opportunity to take counter cyclical action and eventually become stronger. Companies with poor financial condition and poor portfolio may end up in trouble, unable to survive in their current size and form.

5. Unexpected transaction promotion, otherwise it may stagnate

Compared with recent years, the M & a market of chemical companies has been nearly stagnant. However, the crisis is likely to boost the market, otherwise it could stagnate as market valuations are at peak levels and demand prospects weaken before the pandemic.

6. Unique catalyst for innovation and new business models

Crisis is often a catalyst for innovation, the establishment of new industrial structure and cost level. For the chemical industry, this is a unique opportunity to be closer to the end users, accelerate the innovation of digital business model, and meet the needs of customers. By interacting with customers, chemical companies can avoid commercialization traps and value for money prices instead of pricing by ton.

7. The urgency of achieving a responsible value chain for future generations

Despite these challenges, the chemical industry should maintain its long-term goals, taking into account not only the economy, but also the social and environmental core response plans. The chemical industry can build on a long history of improving our living standards and should use its innovative strength and resilience to make responsible value chains possible (from promoting access to safe and affordable food and clean water to carbon free energy and transportation).

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